1. Assessment of the GTAC: Nova’s perspective
27 March 2018

2. Overview
Nova largely in agreement with GIC on major impediments to adopting the GTAC
First Gas acknowledged those points in its submission and has offered solutions
Presentation focuses on points of difference
GTAC is a package
No benefit in trying to upgrade VTC or MPOC as an alternative

3. Nova’s position on key topics
Agree
with GIC analysis
Disagree
Agree with
First Gas revised position
Outstanding issues

4. Nova’s position on key topics
Agree
with GIC analysis
Disagree
Agree with
First Gas revised position
Overrun / Underrun charges
Liabilities Regime
Interconnection Agreements
Park & Loan (approved ERM)
Supplementary Agreements
Deemed non-RPO provisions
Workload on nominations
Outstanding issues

5. Nova’s position on key topics
Agree
with GIC analysis
Disagree
Agree with
First Gas revised position
Overrun / Underrun charges
Liabilities Regime
Interconnection Agreements
Park & Loan (approved ERM)
Supplementary Agreements
Deemed non-RPO provisions
Workload on nominations
Investment costs in forecasting DNC
Priority rights
ERM charges
Outstanding issues
Hourly overrun charges
Rebates
Taranaki Target Pressure

6. Forecasting DNC – resources required
GIC position
May cost millions
Need for investment driven by excessive penalties
Potential to centrally determine non-TOU demand forecasts
Nova’s position
Cost of penalties to be corrected ( F-1 => F-2 )
Reduces expected cost of penalties
Net cost of Penalties, after Rebates, not excessive
Resourcing invested in forecasting DNC unlikely to be excessive
No central forecasting needs to be considered at this stage
But could be added later
Better forecasting of DNC should lead to better line-pack management,
Benefits in terms of TTP & provision of Park & Loan

7. Rebates are a useful part of the mix
GIC Neutral
Marginal cost of penalties with different market shares:
mathematically correct, but significance overstated
Without Rebates:
Beneficiaries of lower DNC charges in future years likely to differ from today’s payers.
Focus on gross cost of penalties
=> more money gets spent on forecasting DNC than the alternative
Full cost of penalties to be passed through, either in transmission charges or gas price
Difficult & expensive for Shippers to allocate penalty costs to different market groups
=> inefficient pricing
Lacks transparency
With Rebates
Shippers only need to recover net costs of penalties
Major Gas Users may opt to provide nominations, pay penalties, and receive rebates
=> incentive to improve accuracy of their nominations
Transmission charges likely to include only a small component to cover net penalty costs
Would facilitate downward pressure on prices

8. Priority Rights a positive
Major gas users
Need to assess marginal value of gas versus of security of supply
Reduce probability of Critical Contingency Event through demand response
Complex for Shippers with a wide mix of customers, each with a different marginal value of gas
SAs & IAs
Could be made subject to GIC approval to protect 3rd party interests
Mass Market (Non-TOU) Shippers
Protected within Critical Contingency Regulations
Is this an incentive to not hold PRs?
Nothing to prevent Shippers from securing adequate PRs, either
Bid above expected clearing price, or
Change rules to receive automatic allocation at clearing price
No validity in mass market Shippers being disadvantaged

9. ERM Charges An improvement on MPOC MBB cash-outs
Initial settings should not be an issue in assessing GTAC
Tolerances need resolution

10. Hourly overrun charges
Concern over impact on marginal costs of electricity generation
Manageable with more nominations cycles:
4-hourly
2 a.m., 6 a.m., 10 a.m., 2 p.m., 6 p.m., 10 p.m.
Do not need to be updated by users every cycle
Less likely to require emergency cycles

11. Taranaki Target Pressure
Amending clause defining First Gas TTP obligations unlikely to make a difference
Financial incentive would need to be part of Commerce Commission regulation
GTAC better than MPOC & VTC because:
Better alignment of nominations and demand
4-hourly nominations cycles would also improve control over TTP